Unilever bets big, Tesco fi­nally walks in, CCI pow­ers on, Cairn and RIL prom­ise $9bn more in­vest­ment … it’s not just Modi, with elec­tions in the air, even Rahul Gandhi speaks growth

The Financial Express - - FRONT PAGE - Illustration: SHYAM SU­NIL JAIN

The year’s twists and tur ns, its depths and its lows were, not sur­pris­ingly, best cap­tured by con­trast­ing head­lines at its be­gin­ning and at its end. If the flavour of the year was In­dia’s col­lapse and its sub­se­quent re­cov­ery, al­beit weak, the lead head­line on Jan­uary 1 was In­dia’s cur­rent ac­count deficit (CAD) at a record 5.4% in Q2 and a fis­cal deficit that was so large, 80% of the year’s tar­get had been used up by Au­gust 2012 it­self; at the end of the year, the head­lines were about the CAD be­ing largely un­der con­trol (Q2 CAD was a mere 1.2% of GDP) but, on the fis­cal side, it was re­mark­ably sim­i­lar with 84.4% of the year’s deficit be­ing used up by Oc­to­ber. The year be­gan with the ru­pee at 54.69, the Sen­sex at 19,581 and GDP at 4.7%; it ended with the ru­pee at 61.8 af­ter hav­ing trav­elled all the way down to 68.83 and the Sen­sex at 21,033 though GDP growth was roughly sim­i­lar—in be­tween was a re­mark­ably topsy-turvy jour­ney, some of which is cov­ered on the graphs on this page, the salient parts of the rest on the dif­fer­ent pages of this spe­cial sec­tion.

The other big story on FE’s page 1 on the first of Jan­uary was the im­pend­ing US fis­cal cliff which, added to the dis­mal eco­nomic per­for­mance—0.1% GDP growth in the De­cem­ber quar­ter of 2012—spelt dis­as­ter for the global econ­omy; not sur­pris­ingly, In­dia’s ex­ports growth was con­tract­ing in the last few months of 2012. By the end of 2013, US growth had roared back to 4.1% (in the Septem­ber quar­ter), a num­ber not seen in six pre­vi­ous quar­ters. While both were rea­son enough for the Fed to fi­nally start its ta­per, the big­gest rea­son was an agree­ment on the bud­get, phew!

On FE’s front pages, the year be­gan with the Na­tional High­ways Au­thor­ity of In­dia (NHAI) threat­en­ing to take the en­vi­ron­ment min­istry to court for de­lay­ing projects—a few weeks prior to this, the GMR Group had driven off the 555-km long Kis­hangarh-Udaipur-Ahmed­abad high­way for which it had promised to pay NHAI over R9,000 crore on an NPV ba­sis. At the end of the year, not much had changed in terms of en­vi­ron­men­tal clear­ances, but stung by a 4:1 loss in the as­sem­bly elec­tions, a chas­tened gov­ern­ment en­sured en­vi­ron­ment min­is­ter Jayan­thi Natara­jan was re­called to the party and Veer­appa Moily was given ad­di­tional charge of the min­istry—Moily man­aged to clean up a large part of the mess his pre­de­ces­sor left in the oil min­istry and give a fil­lip to ex­plo­ration that was stuck for a long time. Ex­pect a se­ries of clear­ances soon, a pos­si­ble R45,000 crore of which were out­lined in an FE story just a few days ago. And, for what it’s worth, NHAI is likely to award its first build-op­er­ate-trans­fer project in the year soon.


If the year’s big­gest up­set was the ru­pee and the CAD, the big­gest plus was the stun­ning pull­back, largely or­ches­trated by fi­nance min­is­ter P Chi­dambaram—RBI Gov­er­nor Raghu­ram Ra­jan’s swap ar­range­ments which col­lected a sur­prise $34 bil­lion also played a role in the ru­pee’s re­cov­ery. The Cab­i­net Com­mit­tee on In­vest­ment (CCI) was nowhere nearly as pow­er­ful as con­ceived by Chi­dambaram and so could not over­rule in­di­vid­ual min­is­ters who were re­cal­ci­trant in clear­ing projects, but it did an amaz­ing job by clear­ing projects worth R4,01,100 crore. Get­ting th­ese projects back on track will take time—as Credit Suisse’s House of Debt re­port pointed out, In­dia Inc’s av­er­age in­ter­est cover has fallen from 4.2 in Q2FY12 to 2.7 in Q2FY14.

Bal­anc­ing the bud­get, another big pos­i­tive for an econ­omy that looked like it could be down­graded for much of the year, has not been easy ei­ther, but a sav­age cut in ex­pen­di­tures, both last year and this year, has been Chi­dambaram’s re­sponse. And while the col­laps­ing ru­pee made a mock­ery of the diesel and LPG sub­sidy cuts, there is lit­tle doubt they are work­ing. Chi­dambaram’s abil­ity to stay within his ‘red line’ has been made eas­ier by post­pon­ing R1.4 lakh crore of ex­pen­di­ture—that’s more than 1% of GDP—but over the years, un­der-bud­get­ing and post­pon­ing ex­pen­di­ture, apart from dump­ing R64,000 crore of sub­si­dies on oil PSUs, has be­come par for the course.

On the whole, the gov­ern­ment made re­mark­ably lit­tle use of its suc­cess­fully im­ple­mented Aad­haar pro­gramme—by the end of the year, 53.34 crore peo­ple had Aad­haar num­bers. A to­tal of R1,700 crore was dis­bursed for LPG sub­si­dies in 184 dis­tricts, show­ing enough proof of con­cept were any gov­ern­ment will­ing to move ahead with the project.

How tor­tu­ous de­ci­sion-mak­ing was in the year is best demon­strated by what hap­pened on gas pric­ing. With Re­liance In­dus­tries Ltd’s (RIL) gas out­put fall­ing in the pro­lific D1/D3 fields and the com­pany ar­gu­ing it would not in­vest if gas prices weren’t freed up fully as was promised in the orig­i­nal con­tract, PMEAC chair­man C Ran­gara­jan was asked to head a panel on it; Ran­gara­jan sug­gested a half-way house for a few years, but it took six months for the Cab­i­net to clear the for­mula, and another six to de­cide whether to al­low RIL to avail of this since the gov­ern­ment be­lieves RIL was sup­press­ing out- put till prices rose.

If this wasn’t enough, the com­merce and in­dus­try con­tin­ued to put all man­ner of road­blocks in re­forms like FDI in multi-brand re­tail and phar­ma­ceu­ti­cals; it even op­posed My­lan’s $1.8 bil­lion takeover of Agila Spe­cial­i­ties and also wants to some­how cap roy­alty pay­ments—if Tesco still came in, it was af­ter a year of need­less to and fro.

The other spoiler, and there were so many, was the tax­man which went af­ter MNCs par­tic­u­larly with a vengeance. As a re­sult, while tax ar­rears rose from R3.3 lakh crore in FY12 to R4.8 lakh crore in FY13—within this, trans­fer pric­ing ad­just­ments rose from R10,908 crore for FY07 re­turns to R70,016 crore for FY10—the out­stand­ing Mu­tu­ally Agreed Pro­ce­dure (MAP) tax cases with the US rose to a stun­ning 100. Prob­lem was, US tax au­thor­i­ties sim­ply re­fused to even en­ter into MAP ne­go­ti­a­tions as long as SK Mishra was in charge of in­ter na­tional tax ne­go­ti­a­tions. On the eve of his road­show to woo US in­vestors on July 10, fi­nance min­is­ter P Chi­dambaram trans­ferred Mishra with­out even a re­place­ment job.

With some of the gov­ern­ment’s last-minute flour­ishes be­gin­ning to de­liver and the po­lit­i­cal cli­mate look­ing dra­mat­i­cally dif­fer­ent with the Congress in dis­ar­ray, the BJP look­ing stronger, and min­now AAP chang­ing the po­lit­i­cal dis­course like never be­fore, 2014 is go­ing to an ex­cit­ing year.

Happy New Year!

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